Saturn was General Motors’ response to the Japanese invasion of the US auto market.
The Japanese automakers’ penetration of the US market gathered momentum throughout the 1970s and ‘80s. By 1990, this was a major cause for concern, not just in Detroit, but also in Washington DC, where politicians observed the country’s ballooning trade deficit with alarm. The problem was exacerbated by the behaviour of the US automakers themselves, who were sourcing an increasing proportion of their vehicle parts from Japan.
In 1990, the US-Japan bilateral trade deficit in vehicles and automotive parts was $31.1 billion(1). This represented 28% of the total US trade deficit, and 76% of the country’s bilateral trade deficit with Japan. The deficit in vehicles was $20.6 billion, barely increased on the $19.7 billion deficit seen in 1985. The deficit in automotive parts, however, had more than doubled over the same period, from $4.4 billion to $10.5 billion.
The US automakers struggled in particular to build cheaper, economy cars that were a match in terms of quality and reliability for their Japanese competitors. Part of the problem was the legacy issues concerning the rigidity of labour contracts negotiated with the powerful UAW(2) union over several decades, which included generous healthcare and pension provisions. When many of these contracts were agreed, the US automakers enjoyed a virtual stranglehold over their domestic market and operated as an oligopoly. Hence, they needed to pay little heed to working practices at their overseas competitors and could afford to be more generous than might otherwise have been the case.
The problem of Japanese incursion into the US auto market was even more serious than the trade imbalance figures suggested. Honda opened its first US manufacturing facility in Maryville, Ohio, in 1982 where it initially built the US market Accord. A year later, Nissan opened a factory in Smyrna, Tennessee.
In 1984, Toyota joined forces with General Motors to establish a joint-venture company, NUMMI(3), reopening a shuttered GM plant in Fremont(4), California, initially to build the US market Corolla and a GM-branded version, the Chevrolet Nova, which was succeeded by the Geo Prizm. Toyota followed this up in 1988 by opening its own manufacturing plant in Georgetown, Kentucky, where the US-market Camry was built.
Subaru and Isuzu, each too small in sales terms to justify their own US manufacturing plant, teamed up in 1986 to open a factory in Lafayette, Indiana, to build the Subaru Legacy and Isuzu Rodeo models. All these US-built so-called transplants were not contributing directly to the trade imbalance(5) but were helping to expand the Japanese market share even further.
Moreover, because these plants were being established in areas that were not in the traditional home of auto manufacturing, state governors were keen to offer generous start-up grants to attract them in. With a new and largely youthful workforce, healthcare and pension costs would be significantly lower than those incurred by the Detroit Big Three, at least for a generation.
The effect of these developments on the Japanese automakers’ share of the US market was transformational. Their combined market share(6) saw a near-fivefold increase from 4.99% in 1970 to 24.29% in 1990. The US ‘Big Three’ saw their combined market share drop by 16.4% from 83.54% to 69.82% over the same period. The biggest loser was General Motors, which saw its market share fall 19.3% from 42.92% to 34.63%.
One of Toyota’s preconditions for reopening the Fremont plant was that the workers, 85% of whom had previously been laid off by GM, would only be re-employed on contracts dictated by Toyota and the plant would be run strictly in accordance with the Toyota Production System. Old GM-era hierarchies and demarcation rules would be swept away. Many former GM workers were, initially at least, adamantly opposed to this, but needed jobs, so acquiesced.
Many workers were sent to Japan to learn the Toyota system and the majority returned as disciples for the Japanese way of doing things. After production began in September 1986, productivity and quality was soon the equal of Toyota’s Japanese factories. Frustratingly for GM, the Prizm, even though it was built on the same production line by the same workers as the Corolla, was never rated as highly as the ‘Japanese’ car in consumer surveys.
Even though the NUMMI venture would ultimately be wound up, it proved a valuable learning experience for General Motors. The company knew that, in order to meet the Japanese challenge on equal terms, it would need to start with a clean sheet and establish a new manufacturing company that was unburdened with legacy costs and could negotiate new, flexible employment contracts with the UAW. That new company would be called Saturn.
Saturn LLC was established in January 1985(7) as a wholly owned subsidiary of General Motors. It would, however, be five years before the company launched its first model. In the intervening period, the new company had to be built from the ground up. A site in Spring Hill, outside Nashville, Tennessee, was identified for the company’s manufacturing plant. Spring Hill was a sleepy rural town with a population of 1,100 before Saturn’s arrival. The state paid a reported $30 million for a new road linking the site to the nearby freeway. GM reciprocated by paying a bargain $1.25 million for a new town hall(8).
The new 4.5 million sq. ft. (418,000 m2) plant comprised separate units for powertrain production, body construction and final assembly. All external components, even tyres, were single-sourced, which was the suppliers’ reward for meeting Saturn’s strict ‘just-in-time’ delivery criteria.
Everyone, from assembly line workers to senior management, were referred to as ‘partners’ and wore the same Saturn-branded polo shirts, baseball caps and jackets. Wage rates were lower than at traditional GM plants, but staff were incentivised by a system of performance-related bonuses and a much more collegiate working environment. Saturn claimed to have received 20,000 applications for the 2,700 jobs available. Over half those employed were existing or former GM staff. Beyond Spring Hill, the work of building an independent dealer network was underway.
The total cost of the Saturn venture up to launch date was said to be $3.5 billion. The first Saturn models were the Saturn SL compact saloon and SC coupé. The SL was based on a concept car first seen in the mid-1980s and was not originally intended to be a Saturn, but rather marketed under one of GM’s mainstream brands. The first example rolled off the production line on 30th July 1990 and was delivered to the new Saturn dealership in Memphis.
Saturn executives were realistic about the challenge facing the new marque. Vice-President of manufacturing, Guy Briggs, was quoted as saying flatly that “Saturn has to be a fiscal success.” Head of marketing, Don Young, said “Import buyers are not receptive to ‘made in America’. We are trying to take people out of cars which they are really happy with, into a car which they know very little about.” It didn’t help that the company behind the venture was GM, “which our research shows they aren’t so positive about either.” added Young.
The challenge ahead for Saturn was daunting. How successfully would it meet that challenge?
The story of Saturn continues in Part Two.
(1) Source: The Office for the Study of Automotive Transportation, The University of Michigan Transportation Research Institute, May 1991 report.
(2) United Auto Workers union.
(3) New United Motorcar Manufacturing Inc.
(4) The Fremont plant had an unenviable reputation for having “the worst workforce in the automobile industry in the United States” according to a UAW official recalling its troubled history. The plant is now owned and operated by Tesla.
(5) Imported parts used in these vehicles did, of course, contribute to the trade deficit.
(6) Market share data from www.knoema.com.
(7) Although claimed by GM Chairman and CEO Roger B. Smith, the concept behind Saturn predated the formation of the LLC and was the brainchild of Alex C. Mair, a GM ‘lifer’ who had led GM’s Pontiac and GMC Truck divisions during his long career before retiring in 1986.
(8) The old town hall was, allegedly, a trailer!